Why didn´t Hank Paulson bail out Lehman Brothers , and however he bailed out Goldman, AIG, and others?
Didn´t get it, sorry. Anyway, I have read that since he was a ex-Golman Sachs, and this firm wanted to get rid of Lehman Brothers...
Off shore, meaning in other countries. The owners, employees, and others that were effected, don't vote in the US.
I meant that I didn´t get the point, I understood every word, but not why it is a point for the discussion. Some claim that if Lehman had been bailed out, this crisis would have been less tough, far less tough.
I don't get your point. Lehman wouldn't have kept housing prices high, they had already started falling. New home construction, purchases & refi's had already stalled, reducing consumer spending. Foreclosures were no longer easy to sell, and some home owners that were upside down walked away, mortgage based securities turned toxic. It is government bail outs that allowed companies like Lehman to get that far out on a limb. Why? Investors knew they could take profits, and suffer no losses. If Lehman (Goldman, etc.) didn't take risks, their investors would move to a company that did.
1. So, Lehman Bothers downfall made no difference, it was a good thing to do, or neither good, nor bad? 2. Did Lehman Brothers receive any bailout as you state in your penultimate line? 3. Why did the house prices go down so quickly? because subprime mortgages couldn´t be paid any longer by its owners, due to the raise of interest? Did that trigger the drop of the prices?
1. I didn't see any major catastrophe with Lehman's bankruptcy. I have more concern with what will happen when the banks, with over $800B in excess reserves, loan it all out. 2. No, and it is the first since 1982 - which is what caused tremors in the industry. 3. Like every bubble, the "shortage" created by low interest rates, and liar loans created a feeding frenzy that pushed prices above sustainable levels, and created a house building boom. When there were enough houses to meet that frenzied demand, prices stalled, then fell. With a huge supply, and little demand, prices fell below pre-bubble levels. Those that bought a home they couldn't afford, defaulted first, those that were hugely upside down, and could afford to buy another home defaulted next (the banks caught on to that), then those that decided to cut their losses. Somewhere in there were the people that lost their job.
Darn good question that I don't think there's a good answer for. We could go with NA's conspiracy theory, and maybe there's some merit to it, but it seems implausible to me. Perhaps they (the Fed) had more information such as the fact that Lehman was less entangled than the other institutions, but that's just speculation. Another good question might be, if Lehman can fail without causing catastrophic systemic harm and Bear Sterns could be easily liquidated... why did we bail any of them out and why not instead let them go through some type of modified bankruptcy proceedings?
Actually, I thought that Lehman downfall triggered a chain reaction: No more confidence, banks began not to trust each other, and that made all happen, I mean, that somehow, in a big way, Lehman triggered the current worldwide crisis, that is , at least, what I thought.
That can only be true if you also think that the heads of these firms were expecting a bail out, which they of course had every reason to given the precedence set by the S&L crisis. So sure, the Lehman collapse lead to uncertainty, but the fact that they had that expectation at all was the real problem.
There is some interesting literature discussing the matter. For a laymen's account, refer to Andrew Ross Sorkin's Too Big to Fail, for short.
Sounds interesting I'll have to check it out. I did hear a good interview with Gary Stern about a book by the same title that chronicles the history of bank bailouts and attribute the current moral hazard issues to the original bailout of Continental Illinois in '84.
